Reference compensation: a transfer of reference price theory to human resource management

The topics of compensation in human resource management and pricing in marketing theory both involve a monetary component that is important for companies to manage. While the role that price perceptions play for consumers is the subject of the well-established reference price theory, human resource management theory lacks any related concept for the compensation perceptions held by employees. This paper transfers reference price theory to HR management in the form of reference compensation, conceptualized as an individual’s compensation norm, including normative and predictive compensation expectations. Possible measures to influence employees’ reference compensation are suggested and avenues for further establishing the concepts in research and practice are developed. As a first empirical attempt to support the relevance of the concept, we present results of an exploratory study among 88 part-time students. We show that employees apply references when judging compensation, and that the applied references vary with different employment situations.